Billionaire Stephen Ross’s Related Cos. new project in the sleepy end of downtown Los Angeles is designed to invigorate Grand Avenue the way its Time Warner Center helped energize New York’s Columbus Circle.
“The notion of bringing together this diverse mix of uses, and allowing for a lot of public spaces and public events, has proven to be very powerful in the right locations and with the right planning.” said William Witte, president of Related’s California division.
The New York-based firm formed a joint venture with Los Angeles-based SBE Entertainment Group LLC to restart plans for a $650 million-to-$700 million complex with entertainment, shopping, apartments, condominiums and a luxury hotel, Witte said. After going back and forth with local officials for most of the past year, Related won approval in January for the Frank Gehry-designed project from Los Angeles County supervisors.
While trendy bars, stylish hotels and bustling restaurants enliven the south end of downtown Los Angeles near Phil Anschutz’s Staples Center sports arena and the L.A. Live hotel-and-entertainment complex, the streets around Grand Avenue a mile north are largely empty after dark. Related’s project may serve as a catalyst for further building, according to Witte.
Related’s original plans for a $1.8 billion mixed-use development were scuttled first by the recession, when financing for the project dried up, and then by the county’s rejection of a scaled-back project.
The area is dominated by government buildings such as Los Angeles City Hall and the downtown criminal court, which empty out at the end of the business day. With the exception of visitors attending plays and concerts at the Walt Disney Concert Hall, the Ahmanson Theatre and other Music Center venues, the neighborhood is largely deserted after dark.
“There are plenty of people who go there but they wouldn’t stay,” Witte said in an interview in February. “They’ll go and they leave. We’re going to be hopefully giving them a reason to stay.”
As part of the avenue’s planned revitalization, billionaire philanthropist Eli Broad is building his own art museum near the Museum of Contemporary Art and the Gehry-designed Disney hall.
“Anchored by cultural assets such as the Disney Concert Hall, the Music Center, MOCA and the Broad museum under construction, the transformation of Grand Avenue will be a big attraction for L.A.’s residents and visitors and boost our economy with new housing, hotel and retail businesses,” Los Angeles Mayor Eric Garcetti said in an e-mailed statement.
Already under way on Grand Avenue is a $120 million, 19-story, 271-unit apartment building by Related called the Emerson, slated to include a restaurant and be completed in October. As part of the next phase, where a parking structure currently takes up a full city block, Related is planning a 380-apartment tower with “premium tier” units in upper floors that could be converted to for-sale condos, Witte said.
At the same site will be a high-end, 300-room SLS hotel, a brand owned by Sam Nazarian’s SBE. The Los Angeles-based hotel, restaurant and nightclub company agreed in November to co-develop the Grand Avenue project, with the exception of the residential components, Witte said. The partnership with SBE, owner of Hyde clubs and the Katsuya and Cleo restaurant brands, will help attract young and affluent residents and visitors, he said.
SBE will help develop as much as 200,000 square feet (18,500 square meters) of restaurants, entertainment and retail, Witte said. Nazarian, SBE’s chairman and founder, declined to comment because the partnership with Related hasn’t been announced, said Robbie McKay, an SBE spokesman.
Even with the buzz that SBE’s involvement may bring to the Grand Avenue project, the complex’s success is far from assured. A slowdown of the local economy during its long construction timeline could hurt the development, as might its distance from the more popular parts of downtown Los Angeles.
“The key is demand,” said Richard Green, director of the University of Southern California’s Lusk Center for Real Estate in Los Angeles. “Large-scale developments are very risky because it takes a while to build them and nobody has perfect forecasting skills.”
Grand Avenue’s distance from livelier parts of the city’s core may pose a risk to the project’s success, Green said.
“The width of that avenue is not pedestrian friendly, and it’s isolated from other parts of downtown,” he said. “If you take the wrong turn walking, you end up in a place where pedestrians aren’t allowed. The lack of connectivity in this part of town is a challenge.”
The area where Time Warner Center sits in Manhattan faced a similar challenge when Related started developing it in the early 2000s, Witte said. The West Side property houses offices, a Mandarin Oriental hotel and a shopping mall.
“People say now, ‘Oh, of course, it’s Central Park,’ but back then, people said, ‘Jesus, the West Side -- this is pioneering,’” Witte said in an interview at his Irvine, California, office. “New York in the ’90s was still coming out of the funk. It wasn’t a given that this was a home run. You can create your own success.”
Related is seeking to capitalize on the relative youth and affluence of downtown Los Angeles’s residents. About 75 percent are between 23 and 44 years old, according to a study last year by the Downtown Center Business Improvement District, and the median household income jumped 10 percent from two years earlier to $98,700. That compares with a $56,241 median in 2012 for all of Los Angeles County, according to the latest available data from the U.S. Census Bureau.
Downtown has 52,400 residents, more than double the number in 2006, according to the downtown study.
Demand from investors is rising in the area. Brookfield Office Properties Inc. last year bought MPG Office Trust, expanding its Southern California holdings to become the biggest office owner in downtown Los Angeles.
Last July, Greenland Holding Group Co., the developer building one of China’s tallest towers, announced a $1 billion investment in the Metropolis project, a residential, hotel and retail mixed-use project planned near Staples Center and L.A. Live. Earlier this year, CIM Group, the real estate investor with stakes in buildings including New York’s 11 Madison Ave., bought downtown Los Angeles office tower 2 California Plaza.
An influx of new downtown apartments may dilute the value of individual residential projects, according to Rick Caruso, chief executive officer and founder of Los Angeles-based Caruso Affiliated Holdings, one of the largest closely held U.S. real estate companies. Caruso turned down an invitation by Broad to participate in the Grand Avenue project when the idea was first conceived, he said.
“The market isn’t there to justify the cost per square foot to build,” Caruso said. “There are very few barriers to entry. You have new buildings coming online and you are also competing with the suburbs.”
Construction of the first phase of the Grand Avenue project -- the 380-unit apartment building -- will start in December 2015, following the completion next year of Broad’s $140 million museum, Witte said. For more than a decade, Broad, who made his fortune as a suburban homebuilder, has pushed for a revival of the 65-block downtown Los Angeles, once dominated by government offices, law firms and banks.
The first phase will take three years to complete and cost $650 million to $700 million, Witte said. Depending on the success of the first stage, another phase, with a potential cost of $500 million, may have such mixed-use components as residential, retail and entertainment, according to Witte.
The development was designed by star architect Gehry, who also created the curved, stainless-steel Walt Disney Concert Hall across the street. Gehry, originally hired in 2005 for the Grand Avenue project, was ousted after officials rejected the previous design.
Gehry declined to comment on the project, referring questions to Related, said Meaghan Lloyd, a spokeswoman for the architect.
Related also is the developer of Hudson Yards on Manhattan’s West Side, a $20 billion project that took a key step forward in March when work began on a platform over the area’s rail depot designed to support three skyscrapers. Hudson Yards, at a planned 17 million square feet, is the biggest private real estate development in U.S. history, according to the company.
In Los Angeles, the challenge for Related will be making the Grand Avenue profitable. The current plans call for 20 percent of the project’s apartments to be affordable housing and a large amount of open space, including a 24,000-square-foot public plaza with 100-year-old Barouni olive trees.
“It’s a project that I think will come to be known for its public spaces as much as for its private spaces,” Witte said.
Witte said he is hoping Grand Avenue will be to the northern portion of downtown what L.A. Live is to the southern part. The Anschutz Entertainment Group complex, home to Nokia Theatre and Ritz-Carlton and JW Marriott hotels, has helped spur development of restaurants, bars and hotels nearby.
“By demographic and job data, downtown should have developed earlier than it did,” Witte said. “These things need catalysts. When Staples Center went in and AEG went forward on L.A. Live, it was a huge catalyst. It encouraged investment to come when by rights it should have come well before. Grand Avenue can be such a catalyst too.”
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